IPE Expectations Indicator November 2016

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Summer is over. Gone for the next nine months are the warm nights, and worry-free days…correction, only the warm nights have gone. The worry-free days did not exist this summer, and they still do not. The current survey period accounts for further comprehension of the Brexit vote, intensifying concern over Deutsche Bank and continued accommodative policies from the ECB and BOJ, not to mention an election in the US which, while painful to watch, may be equally harmful in its conclusion.

Bonds

$

¥

£

€

% predicting rise (previous month)

13 (17)

6 (11)

13 (17)

12 (12)

% predicting stability (previous month)

38 (39)

60 (61)

47 (49)

49 (56)

% predicting fall (previous month)

49 (44)

34 (28)

40 (34)

39 (32)

The key theme in the survey period is decreasing expectations for bond prices to rise and increasing expectations for bond prices to fall. The exception being euro-denominated issuance, where the proportion of managers expecting a rise remained the same, coupled with a decline in expected stability. Yen bond prices are still not expected to rise, and dollar bond prices are predicted to decline. In fact, it is only dollar bonds where price falls are the voice of the majority.

Equities

US

Euro-zone

Japan

Asia

UK

% predicting rise (previous month)

31 (32)

35 (37)

34 (27)

48 (43)

30 (28)

% predicting stability (previous month)

43 (47)

51 (50)

45 (54)

38 (40)

43 (44)

% predicting fall (previous month)

26 (21)

14 (13)

21 (19)

14 (17)

27 (28)

It was less than a year ago that nearly 90% of managers expected euro-zone equities to rise. A 13% decline – in euro-terms – later and that portion has declined by more than 50%. While the majority expects stability,the number expecting declines is seven times greater than when exuberance reigned. Generally, expectations for equity market declines are at, or close to, their highest levels in at least two years. The exception is Asian markets, excluding Japan, where positive sentiment is at its highest for almost 18 months. For the UK, the FTSE has been riding the crest of a Brexit wave since June; expectations for further gains have increased.

Currencies

$/€

$/¥

$/£

% predicting rise (previous month)

45 (46)

50 (54)

52 (49)

% predicting stability (previous month)

43 (44)

32 (37)

35 (35)

% predicting fall (previous month)

12 (10)

18 (9)

13 (16)

Expected dollar strength is nearly unanimous. At least half of respondents believe yen and sterling will fall, while the majority, expect the euro to also weaken. The 52% expecting dollar strength against sterling is below the two-plus year high of 57% of this July, but the portion expecting the dollar to weaken against sterling has declined. The portion expecting stability against the euro and sterling has been constant, although close to its lowest level. While half of managers expect the dollar to rise versus the yen, the portion expecting a fall doubled to reach a two-plus year high.